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A debit card company that charged consumers a fee for a debit card they had ordered unknowingly while applying for a payday loan online, has agreed to settle Federal Trade Commission charges that the company and its principals violated federal law. The settlement bars future violations and requires the company’s owner to pay $52,000. The FTC also filed suit in federal court, charging the company’s marketing affiliate and its principals with deceptive marketing practices and seeking to bar the deception and obtain redress for consumers.

The FTC alleged that thousands of consumers who applied for a payday loan online were charged up to $54.95 for a prepaid debit card with a zero balance. According to the FTC, the debit card company sold Visa- and MasterCard-brand debit cards through a payday loan marketer whose Web site homepages contained a loan application form and a button for submitting it. On numerous Web sites, consumers who clicked the submit button were taken to another page offering four products unrelated to the loan, each with tiny “Yes” and “No” buttons. “No” was pre-clicked for three of the products; “Yes” was pre-clicked for a debit card, with fine-print disclosures asserting the consumers’ consent for their bank account to be debited. Consumers who failed to change the debit card offer to “No” and simply clicked the prominent button labeled “Finish matching me with a payday loan provider!” incurred the fee for the debit card. On other Web sites, the homepage touted the debit card as a “bonus” and disclosed the enrollment fee only in the fine print below the submit button.

According to the FTC’s complaint, the debit card company and the payday loan marketer worked together to design the offer. The card company paid its affiliate up to $15 for each transaction. Thousands of consumers were charged the enrollment fee of up to $54.95, and many also were hit with fees and penalties from their banks because their accounts ended up overdrawn. Consumers complained to the companies, the Better Business Bureau, law enforcement agencies, banks, and payday lenders.

All of the defendants were charged with falsely representing that consumers who completed an online loan application and clicked the submit button were only applying for a loan, when in fact they were also buying a prepaid debit card. They were also charged with falsely representing that loan applicants would receive a prepaid debit card at no charge.

The settlement order permanently bars the debit card company and its principals from misrepresenting the cost of any product or service, the method for charging consumers, or any other material fact. They also may not misrepresent that a product or service is free or a “bonus” without disclosing all material terms and conditions. The order further bars the defendants from charging consumers without first disclosing the specific billing information to be used, the amount to be paid, the method for assessing the payment, the entity on whose behalf the payment will be assessed, and all material terms and conditions. The order also requires that consumers affirmatively authorize the transaction, and it requires the settling defendants, in marketing financial products or services, to take reasonable steps to monitor their marketing affiliates to ensure compliance with the order.

The order imposes a $5.5 million judgment against the settling defendants, which is suspended upon payment of $52,000 by the debit card company’s owner. The full judgment will become due immediately if the settling defendants are found to have misrepresented their financial condition. The order also contains record-keeping and reporting provisions to monitor compliance.

The settling defendants are VirtualWorks, LLC, also known as Virtual Works and formerly known as Private Date Finder, also doing business as EverPrivate Card and Secret Cash Card; Jerome “Jerry” Klein; and the company’s owner, Joshua Finer. The Commission vote to authorize staff to file the stipulated final order and complaint as to the settling defendants was 3-0-1, with Commissioner J. Thomas Rosch abstaining. The complaint and order was filed in the U.S. District Court for the Northern District of California, San Jose Division.

The marketing affiliate defendants are Swish Marketing Inc., Mark Benning, Matthew Patterson, and Jason Strober. The Commission vote to authorize staff to file the complaint as to the marketing affiliate defendants was 4-0. The complaint was also filed in the U.S. District Court for the Northern District of California, San Jose Division.

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